An important new analysis shows progressive policies don’t hurt, and probably help, growth and jobs

Jared Bernstein, a former chief economist to Vice President Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities and author of 'The Reconnection Agenda: Reuniting Growth and Prosperity'.

California Gov. Jerry Brown (Rich Pedroncelli/AP)

Of the many things that are terribly wrong with our current tax debate, one primary offender is the notion that tax cuts will unleash massive growth effects. If facts could kill this mythology, it would be long dead. Instead, we get Treasury Secretary Steven Mnuchin saying on CNN’s “State of the Union” that the cut will generate enough growth to not merely offset its $1.5 trillion price tax; it will generate another $1 trillion on top of that. I suspect even White House economists wouldn’t defend such an outlandish claim.

That said, even while Mnuchin is light-years from Factville, his fiscal fantasy emanates from an ancient Republican contention, which is that taxes hurt growth, so cutting them raises growth. In fact, conservatives take this much further, contending that almost any environmental regulation, health care, safety net, labor standard (minimum wage, overtime rules) or collective bargaining agreement whacks growth and is thus counterproductive.

I’ve tried, with varying success, to pick these off one by one, but a great, new paper just landed on my desk that takes a clever approach to this question of the impact of progressive, market interventions on growth and jobs. Ian Perry of the University of California Berkeley Labor Center has a new paper out called “California Is Working” that tests this question in a sort of experimental framework by using California as an example of the conservative, anti-interventionists’ worst nightmare.

Perry shows that between 2011 and 2016, the “left-coast” state enacted “51 policy measures addressing workers’ rights, environmental issues, safety net programs, taxation, and infrastructure and housing … Labeled “the California Policy Model” (CPM) … this set of policies expanded the role of government in California’s economy by raising its minimum wage, extending health insurance to millions of residents, setting ambitious climate policy, and raising taxes on high earners and corporations.”

If the conservative growth critique is even half right, economic conditions in California should be terrible, especially compared to other places that didn’t enact such measures.

Instead, Perry generates two findings. First, the CPM measures had their intended effects (this may sound obvious, but if, for example, a minimum wage hike isn’t reaching anybody, we wouldn’t expect any job impacts either way). In fact, low wages gained in the state, and wage inequality fell a bit. The state is on track to meet its reduced-emissions goals. Health coverage is significantly up in California relative to non-Medicaid-expansion states (this is a conventional finding among all expansion states).

Second, and this is the punchline: State GDP and job growth “were not adversely affected by the California Policy Model.” As the figure below reveals, compared with states whose politics were dominated by Republicans over the period of the study (2011-16), state GDP growth, along with both private and total employment grew faster in California than in the control group of states. The private-sector jobs bar is important to preclude the argument that the CPM hurts private, not government-sector, job creation. Not so.

Source: Ian Perry

Is this a convincing research design? After all, there are zillions of different moving parts in state economies. What we’d ideally want to compare in this setting is two Californias: one that implemented the CPM and one that didn’t. Using a statistical technique that upweights trends in the comparison states that move similarly to California before 2011, Perry tries to simulate that comparison. If jobs in a Republican-controlled state were growing at a rate like California’s before 2011, that state would play a more prominent role in comparing the variables above (Perry combines these weighted variables to create a “synthetic California”). Doing so doesn’t change the findings at all, and the next figure shows job growth in actual California outpacing that of synthetic California post-2011, when the CPM took hold.

Source: Ian Perry

Reasonable critics will question whether this method creates a legitimate control group. It’s possible that the other states underwent some negative trend, unrelated to the policies, not accounted for in the study. Perry notes that California underwent a tech boom during these years, so he runs the experiment without that sector. He still finds faster growth in California, though the gap was smaller.

Moreover, we don’t need to set the evidentiary bar unnecessarily high in this sort of comparison. While his study is suggestive, Perry’s findings don’t convince me that progressive measures lead to faster growth and jobs. They do, however, in tandem with tons of other research, convince me that these progressive interventions do not hurt growth. The defense of the CPM against the onslaught of predictions of doom need not point to better growth outcomes. It could well be — in fact, I think it is — that these measures have little to do with growth and a lot to do with who benefits from that growth.

That’s why these issues generate so much heat from the affected industries and their lobbies. It’s not growth rates they’re really worried about. It’s who gets the money, the cleaner air, the health coverage and so on.

Remember this in the context of the tax debate, as its advocates assure us that unleashing growth requires tax cuts on behalf of wealthy households and multinational corporations. And keep these findings in mind next time conservatives inveigh against expanding affordable health coverage or raising the minimum wage or the overtime salary threshold. Though their cries will allege the squandering of growth and jobs, the evidence from California reminds us that what they’re really bemoaning is a more equitable distribution of wages, incomes and even power.

That’s what we’re fighting for, and while I know facts aren’t exactly winning the day right now, when the pendulum swings back, we must be ready to wield this useful information in the cause of economic justice.